Goldman Sachs Group Inc (GS) is set to reduce its workforce by fewer than 250 employees due to a sluggish market for deals
May 30, 2023
Goldman Sachs Group Inc (GS) is expected to reduce its workforce by fewer than 250 employees in the coming weeks due to a sluggish market for deals, signaling the challenges faced by investment banking. The job cuts will likely affect various seniority levels, including partners and managing directors, as the bank adjusts to the current market conditions. The move follows Goldman's recent layoffs earlier this year and last year. As investment banks grapple with a decline in dealmaking amid rising interest rates and global uncertainties, Goldman Sachs is taking measures to improve its efficiency ratio and maintain profitability.
Goldman Sachs, one of the leading investment banks, had 45,400 employees as of March, but the challenging market conditions have necessitated further cost-cutting measures. The upcoming job cuts will be a strategic move by the bank to align its workforce with the current market demands. Earlier this year, Goldman reduced its headcount by approximately 3,200, marking its largest round of layoffs since the 2008 financial crisis. In addition, the bank eliminated around 500 jobs in the previous year.
The investment banking sector as a whole has been adversely affected by a decline in dealmaking due to multiple factors. The Federal Reserve's aggressive interest rate hikes aimed at curbing inflation, coupled with the economic uncertainties surrounding the war in Ukraine, have significantly impacted the investment banking landscape. This challenging environment has made it difficult for banks to maintain profitability and has necessitated job cuts and cost-saving measures.
Goldman Sachs is not the only bank facing workforce reductions. Rival firm Morgan Stanley (MS.N) is reportedly planning to eliminate approximately 3,000 jobs in the second quarter, marking its second round of layoffs in six months. Lazard Ltd (LAZ.N) also plans to reduce its workforce by 10%. These industry-wide job cuts indicate the broader impact of the current market conditions on investment banks and their efforts to streamline operations and improve profitability.
Goldman Sachs Chief Financial Officer, Denis Coleman, had previously communicated the bank's plans to enhance efficiency by reducing headcount, not replacing departing staff, and cutting other expenses. The bank has set a medium-term target for its efficiency ratio of 60% compared to the 68.7% recorded at the end of March. A lower efficiency ratio is preferred by banks as it signifies improved profitability. As part of this strategy, Goldman intends to achieve $600 million in payroll reduction to align its expenses with the challenging market conditions.
The global mergers and acquisitions market experienced its lowest levels in more than a decade during the first quarter of 2023. Similarly, initial public offering volumes also hit their lowest level since 2019. These trends indicate the challenging landscape faced by investment banks, which rely heavily on dealmaking for revenue generation. The uncertain economic outlook and fluctuating interest rates continue to pose significant hurdles for the investment banking industry.
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